a) Banking in India

Banking system of a country plays a significant role in promoting economic development

of every nation. A banking institution is an indispensible part of the modern society. It
mobilizes the financial resources of the community and making them to flow into the desired
channels. Indian banking system comprises both organized and unorganized banking sector.
The organized sector mainly consist of money market, commercial banks, co-operative
banks, regional rural banks etc. unorganized sector comprises money lenders and indigenous
banks. They cater the needs of a large number of persons especially in the country side.

b) Evolution of banking in India

There was sufficient evidence to believe that the money business was prevalent in India.
The writings of Manu and kautilya contained the reference to banking. Mahajans, Shroffs,
Sahukars etc were encouraged in banking system. In the beginning of the 18th century, East
Indian Company launched a few commercial banks on modern lines. The first Indian bank of
Hindustan was started in 1770 in Calcutta. Later on East Indian Company started three
presidency banks with government participation. These were the bank of Calcutta, the bank
of Bombay and the bank of madras. These banks were given the right of note issue in their
respective regions. Later all these banks were amalgamated and the imperial bank was found.
Allahabad bank came into existence in 1865 and the alliance bank in 1875. The first purely
commercial bank was formed in 1880. Its name was Oudh commercial bank. The Punjab
national bank was launched in 1894 and the people bank in 1901. The swedeshi movement
encouraged the Indian entrepreneur to start many new banks. A number of banks failed
during he first half of the 20 th century. In effected the people believes and faith in banks. This
insisted the need for an institution to regulate and control the banking industry in the country.
As a result, the reserve bank of India was established in 1935.

There were 648 commercial banks in 1947. Frequent failures of the bank insisted the
government to regulate and reform the banking system of our country. The reserve bank of
India was nationalized in 1949 and the banking companies act was passed in the same year.
Later it was changed to banking regulation act. The enactment of the banking regulation act
was a blood step in the history of banking of our country. The imperial bank was nationalized
in 1955 and renamed it as state bank of India. state bank started a number of branches in the
rural and the urban areas. In 1967, the government introduced the concept of “social control”
in the field of banking industry. It was aimed at bringing some laudable change in the
management and the credit policy of commercial bank.

Fourteen banks were nationalized in June 1969. It was a revolution in the history of
banking industry of India. Regional rural bank schemes were started in 2 nd October 1975. Six
more commercial banks were nationalized in 1980. National bank for agriculture and rural
development was set up in July 1982. Exim bank was launched in 1984 and national housing
bank was started in 1988. New bank of India got merged with Punjab national bank in 1993.
The new private sector bans include ICICI bank limited, HDFC bank limited, UTI bank
limited, global trusted bank limited, industrial bank limited, centurion bank limited, IDBI
bank limited, kotak Mahindra bank ltd and bank of Punjab limited.

c) Structure of indian banking system

In India all banks, development financial institution and investment institution are
working under the supervision and control of the reserve bank of India, the central bank
of the country. To supplement the work of commercial banks we have co-operative
banks, land development bank as well as development financial institutions. The structure
of banking system in India may be briefly explained as below.

1. Central Bank and Monetary authority – Reserve Bank of India

2. Banking Institutions – Commercial Banks, Rural Banks and Co-operative banks
3. Development Banks – Industrial Development Banks and Land Development Banks
4. Investment institutions – Life Insurance Corporation of India limited(LIC), General
insurance corporation(GIC) and Unit Trust of India (UTI)
5. Credit Guarantee Institution – Deposit Insurance and Credit Guarantee corporation of
India limited(DICGCI), Export Credit Guarantee corporation(ECGC)
6. Money Market Institutions – Discount and Finance House of India Limited

Indian banking industry

The growth in the Indian Banking Industry has been more qualitative than quantitative
and it is expected to remain the same in the coming years. Based on the projections made in
the "India Vision 2020" prepared by the Planning Commission and the Draft 10th Plan, the
report forecasts that the pace of expansion in the balance-sheets of banks is likely to
decelerate. The total asset of all scheduled commercial banks by end-March 2010 is estimated
at Rs 40, 90,000 crores. That will comprise about 65 per cent of GDP at current market prices
as compared to 67 per cent in 2002-03. Bank assets are expected to grow at an annual
composite rate of 13.4 per cent during the rest of the decade as against the growth rate of 16.7
per cent that existed between 1994-95 and 2002-03. It is expected that there will be large
additions to the capital base and reserves on the liability side.

The Indian Banking Industry can be categorized into non-scheduled banks and scheduled
banks. Scheduled banks constitute of commercial banks and co-operative banks. There are
about 67,000 branches of Scheduled banks spread across India. As far as the present scenario
is concerned the Banking Industry in India is going through a transitional phase.

The Public Sector Banks (PSBs), which are the base of the Banking sector in India account
for more than 78 per cent of the total banking industry assets. Unfortunately they are
burdened with excessive Non Performing assets (NPAs), massive manpower and lack of
modern technology. On the other hand the Private Sector Banks are making tremendous
progress. They are leaders in Internet banking, mobile banking, phone banking, ATMs. As far
as foreign banks are concerned they are likely to succeed in the Indian Banking Industry.

In the Indian Banking Industry some of the Private Sector Banks operating are IDBI Bank,
ING Vyasa Bank, SBI Commercial and International Bank Ltd, Bank of Rajasthan Ltd. and
banks from the Public Sector include Punjab National bank, Vijaya Bank, UCO Bank,
Oriental Bank, Allahabad Bank among others. ANZ Grindlays Bank, ABN-AMRO Bank,
American Express Bank Ltd, Citibank are some of the foreign banks operating in the Indian
Banking Industry.

Vision of banks in India

The banking scenario in India has already gained all the momentum, with the
domestic and international banks gathering pace. The focus of all banks in India has shifted
their approach to 'cost', determined by revenue minus profit. This means that all the resources
should be used efficiently to better the productivity and ensure a win-win situation. To
survive in the long run, it is essential to focus on cost saving. Previously, banks focused on
the 'revenue' model which is equal to cost plus profit. Post the banking reforms, banks shifted
their approach to the 'profit' model, which meant that banks aimed at higher profit
maximization.

Consolidation of banks in India

India would see a large number of global banks controlling huge stakes of the banking
entities in the country. The overseas banking units would bring along with it capital,
technology, and management skills. This would lead to higher competition in the banking
frontier and ensure greater efficiency. The FDI norms in the banking sector would give more
leverage to the Indian banks.

Thus, a consolidation phase in the banking industry in India is expected in the near
future with mergers and acquisitions gathering more pace. One might also see mergers
between public sector banks or public sector banks and private banks. Credit cards, insurance
are the next best strategic places where alliances can be formed.

Future challenges of banks in India

The Indian banks are hopeful of becoming a global brand as they are the major source
of financial sector revenue and profit growth. The financial services penetration in India
continues to be healthy, thus the banking industry is also not far behind. As a result of this,
the profit for the Indian banking industry will surely surge ahead. The profit pool of the
Indian banking industry is probable to augment from US$ 4.8 billion in 2005 to US$ 20
billion in 2010 and further to US$ 40 billion by 2015. This growth and expansion pace would
be driven by the chunk of middle class population. The increase in the number of private
banks, the domestic credit market of India is estimated to grow from US$ 0.4 trillion in 2004
to US$ 23 trillion by 2050.

Major Developments

The Monetary Authority of Singapore (MAS) has provided qualified full banking (QFB)
privileges to ICICI Bank for its branch operations in Singapore. Currently, only SBI had QFB
privileges in country.
The Indian operations of Standard Chartered reported a profit of above US$ 1 billion for the
first time. The bank posted a profit before tax (PAT) of US$ 1.06 billion in the calendar year
2009, as compared to US$ 891 million in 2008.

Punjab National Bank (PNB) plans to expand its international operations by foraying into
Indonesia and South Africa. The bank is also planning to increase its share in the
international business operations to 7 per cent in the next three years.

The State Bank of India (SBI) has posted a net profit of US$ 1.56 billion for the nine months
ended December 2009, up 14.43 per cent from US$ 175.4 million posted in the nine months
ended December 2008.

Amongst the private banks, Axis Bank's net profit surged by 32 per cent to US$ 115.4 million
on 21.2 per cent rise in total income to US$ 852.16 million in the second quarter of 2009-10,
over the corresponding period last year. HDFC Bank has posted a 32 per cent rise in its net
profit at US$ 175.4 million for the quarter ended December 31, 2009 over the figure of US$
128.05 million for the same quarter in the previous year.
Company profile

The Housing Development Finance Corporation Limited (HDFC) was amongst the first
to receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a bank in
the private sector, as part of the RBI's liberalization of the Indian Banking Industry in 1994.
The bank was incorporated in August 1994 in the name of 'HDFC Bank Limited', with its
registered office in Mumbai, India. HDFC Bank commenced operations as a Scheduled
Commercial Bank in January 1995.

a) Amalgamation
On May 23, 2008, the amalgamation of Centurion Bank of Punjab with HDFC Bank was
formally approved by Reserve Bank of India to complete the statutory and regulatory
approval process. As per the scheme of amalgamation, shareholders of CBoP received 1
share of HDFC Bank for every 29 shares of CBoP.

The merged entity will have a strong deposit base of around Rs. 1, 22, 000 crore and net
advances of around Rs. 89,000 crore. The balance sheet size of the combined entity would be
over Rs. 1, 63, 000 crore. The amalgamation added significant value to HDFC Bank in terms
of increased branch network, geographic reach, and customer base, and a bigger pool of
skilled manpower.

In a milestone transaction in the Indian banking industry, Times Bank Limited (another new
private sector bank promoted by Bennett, Coleman & Co. / Times Group) was merged with
HDFC Bank Ltd., effective February 26, 2000. This was the first merger of two private banks
in the New Generation Private Sector Banks. As per the scheme of amalgamation approved
by the shareholders of both banks and the Reserve Bank of India, shareholders of Times Bank
received 1 share of HDFC Bank for every 5.75 shares of Times Bank.

b) Promoter

HDFC is India's premier housing finance company and enjoys an impeccable track record
in India as well as in international markets. Since its inception in 1977, the Corporation has
maintained a consistent and healthy growth in its operations to remain the market leader in
mortgages. Its outstanding loan portfolio covers well over a million dwelling units. HDFC
has developed significant expertise in retail mortgage loans to different market segments and
also has a large corporate client base for its housing related credit facilities. With its
experience in the financial markets, a strong market reputation, large shareholder base and
unique consumer franchise, HDFC was ideally positioned to promote a bank in the Indian
environment.

c) Business focus

HDFC Bank's mission is to be a World-Class Indian Bank. The objective is to build

sound customer franchises across distinct businesses so as to be the preferred provider of
banking services for target retail and wholesale customer segments, and to achieve healthy
growth in profitability, consistent with the bank's risk appetite. The bank is committed to
maintain the highest level of ethical standards, professional integrity, corporate governance
and regulatory compliance. HDFC Bank's business philosophy is based on four core values -
Operational Excellence, Customer Focus, Product Leadership and People.

d) Distribution network

HDFC Bank is headquartered in Mumbai. The Bank at present has an enviable network of
1,725 branches spread in 780 cities across India. All branches are linked on an online real-
time basis. Customers in over 500 locations are also serviced through Telephone Banking.
The Bank's expansion plans take into account the need to have a presence in all major
industrial and commercial centres where its corporate customers are located as well as the
need to build a strong retail customer base for both deposits and loan products. Being a
clearing/settlement bank to various leading stock exchanges, the Bank has branches in the
centres where the NSE/BSE has a strong and active member base.

The Bank also has 4,393 networked ATMs across these cities. Moreover, HDFC Bank's
ATM network can be accessed by all domestic and international Visa/MasterCard, Visa
Electron/Maestro, Plus/Cirrus and American Express Credit/Charge cardholders.

e) Management

Mr. C.M. Vasudev has been appointed as the Chairman of the Bank with effect from 6th
July 2010 subject to the approval of the Reserve Bank of India and the shareholders. Mr.
Vasudev has been a Director of the Bank since October 2006. A retired IAS officer, Mr.
Vasudev has had an illustrious career in the civil services and has held several key positions
in India and overseas, including Finance Secretary, Government of India, Executive Director,
World Bank and Government nominee on the Boards of many companies in the financial
sector.

The Managing Director, Mr. Aditya Puri, has been a professional banker for over 25 years
and before joining HDFC Bank in 1994 was heading Citibank's operations in Malaysia.

The Bank's Board of Directors is composed of eminent individuals with a wealth of

experience in public policy, administration, industry and commercial banking. Senior
executives representing HDFC are also on the Board. Senior banking professionals with
substantial experience in India and abroad head various businesses and functions and report
to the Managing Director. Given the professional expertise of the management team and the
overall focus on recruiting and retaining the best talent in the industry, the bank believes that
its people are a significant competitive strength.

f) Technology

HDFC Bank operates in a highly automated environment in terms of information

technology and communication systems. All the bank's branches have online connectivity,
which enables the bank to offer speedy funds transfer facilities to its customers. Multi-branch
access is also provided to retail customers through the branch network and Automated Teller
Machines (ATMs).

The Bank has made substantial efforts and investments in acquiring the best technology
available internationally, to build the infrastructure for a world class bank. The Bank's
business is supported by scalable and robust systems which ensure that our clients always get
the finest services we offer. The Bank has prioritized its engagement in technology and the
internet as one of its key goals and has already made significant progress in web-enabling its
core businesses. In each of its businesses, the Bank has succeeded in leveraging its market
position, expertise and technology to create a competitive advantage and build market share.
g) Business

HDFC Bank offers a wide range of commercial and transactional banking services and
treasury products to wholesale and retail customers. The bank has three key business
segments.

1) Wholesale Banking Services

The Bank's target market ranges from large, blue-chip manufacturing companies in the
Indian corporate to small & mid-sized corporates and agri-based businesses. For these
customers, the Bank provides a wide range of commercial and transactional banking
services, including working capital finance, trade services, transactional services, cash
management, etc. The bank is also a leading provider of structured solutions, which
combine cash management services with vendor and distributor finance for facilitating
superior supply chain management for its corporate customers. Based on its superior
product delivery / service levels and strong customer orientation, the Bank has made
significant inroads into the banking consortia of a number of leading Indian corporates
including multinationals, companies from the domestic business houses and prime
public sector companies. It is recognized as a leading provider of cash management and
transactional banking solutions to corporate customers, mutual funds, stock exchange
members and banks.
2) Retail Banking Services
The objective of the Retail Bank is to provide its target market customers a full range of
financial products and banking services, giving the customer a one-stop window for all
his/her banking requirements. The products are backed by world-class service and
delivered to customers through the growing branch network, as well as through
alternative delivery channels like ATMs, Phone Banking, Net Banking and Mobile
Banking.

The HDFC Bank Preferred program for high net worth individuals, the HDFC Bank
Plus and the Investment Advisory Services programs have been designed keeping in
mind needs of customers who seek distinct financial solutions, information and advice
on various investment avenues. The Bank also has a wide array of retail loan products
including Auto Loans, Loans against marketable securities, Personal Loans and Loans
for Two-wheelers. It is also a leading provider of Depository Participant (DP) services
for retail customers, providing customers the facility to hold their investments in
electronic form.

HDFC Bank was the first bank in India to launch an International Debit Card in
association with VISA (VISA Electron) and issues the MasterCard Maestro debit card as
well. The Bank launched its credit card business in late 2001. By March 2010, the bank
had a total card base (debit and credit cards) of over 14 million. The Bank is also one of
the leading players in the “merchant acquiring” business with over 90,000 Point-of-sale
(POS) terminals for debit / credit cards acceptance at merchant establishments. The
Bank is well positioned as a leader in various net based B2C opportunities including a
wide range of internet banking services for Fixed Deposits, Loans, Bill Payments, etc.
3) Treasury
Within this business, the bank has three main product areas - Foreign Exchange and
Derivatives, Local Currency Money Market & Debt Securities, and Equities. With the
liberalization of the financial markets in India, corporates need more sophisticated risk
management information, advice and product structures. These and fine pricing on
various treasury products are provided through the bank's Treasury team. To comply
with statutory reserve requirements, the bank is required to hold 25% of its deposits in
government securities. The Treasury business is responsible for managing the returns
and market risk on this investment portfolio.

h) Ratings

Credit Rating

The Bank has its deposit programs rated by two rating agencies - Credit Analysis &
Research Limited (CARE) and Fitch Ratings India Private Limited. The Bank's Fixed
Deposit programme has been rated 'CARE AAA (FD)' [Triple A] by CARE, which
represents instruments considered to be "of the best quality, carrying negligible
investment risk". CARE has also rated the bank's Certificate of Deposit (CD)
programme "PR 1+" which represents "superior capacity for repayment of short term
promissory obligations". Fitch Ratings India Pvt. Ltd. (100% subsidiary of Fitch Inc.)
has assigned the "AAA (ind)" rating to the Bank's deposit programme, with the outlook
on the rating as "stable". This rating indicates "highest credit quality" where
"protection factors are very high"

The Bank also has its long term unsecured, subordinated (Tier II) Bonds rated by
CARE and Fitch Ratings India Private Limited and its Tier I perpetual Bonds and
Upper Tier II Bonds rated by CARE and CRISIL Ltd. CARE has assigned the rating of
"CARE AAA" for the subordinated Tier II Bonds while Fitch Ratings India Pvt. Ltd.
has assigned the rating "AAA (ind)" with the outlook on the rating as "stable". CARE
has also assigned "CARE AAA [Triple A]" for the Banks Perpetual bond and Upper
Tier II bond issues. CRISIL has assigned the rating "AAA / Stable" for the Bank's
Perpetual Debt programme and Upper Tier II Bond issue. In each of the cases referred
to above, the ratings awarded were the highest assigned by the rating agency for those
instruments.
Corporate Governance Rating
The bank was one of the first four companies, which subjected itself to a Corporate
Governance and Value Creation (GVC) rating by the rating agency, The Credit Rating
Information Services of India Limited (CRISIL). The rating provides an independent
assessment of an entity's current performance and an expectation on its "balanced value
creation and corporate governance practices" in future. The bank has been assigned a
'CRISIL GVC Level 1' rating which indicates that the bank's capability with respect to
wealth creation for all its stakeholders while adopting sound corporate governance
practices is the highest.

i) Capital structure
 As on 30th June, 2010 the authorized share capital of the Bank is Rs. 550 crore. The
paid-up capital as on said date is Rs. 459, 69, 07,030/- (45, 96, 90,703 equity shares of
Rs. 10/- each). The HDFC Group holds 23.63 % of the Bank's equity and about 17.05
% of the equity is held by the ADS Depository (in respect of the bank's American
Depository Shares (ADS) Issue). 27.45% of the equity is held by Foreign Institutional
Investors (FIIs) and the Bank has about 4, 33,078 shareholders.
The shares are listed on the Bombay Stock Exchange Limited and The National Stock
Exchange of India Limited. The Bank's American Depository Shares (ADS) are listed
on the New York Stock Exchange (NYSE) under the symbol 'HDB' and the Bank's
Global Depository Receipts (GDRs) are listed on Luxembourg Stock Exchange under
ISIN No US40415F2002.

j) Color coding
In the HDFC bank each department has their different color coding apply on the
different file. Due to this everyone aware about their particular color file which is
coding on it and they save their valuable time. It is a part of kaizen and also included in
the system of the five `S`. Logic behind it that, the color coding are always differentiate
the things from the similar one.

DEPARTMENT

Welcome Desk

Personal banker

Teller

Relationship manager

Branch manager

Demat

others
 HDFC Bank Products and Customer Segments
Personal banking

Loan product Deposit product Investment and

insurance
 Auto loan  Savings a/c  Mutual funds
 Loan against  Current a/c  Bonds
security  Fixed deposit  Knowledge centre
 Loan against  Demat a/c  Insurance
property  Safe deposit locker  General & health
 Personal loan insurance
 Credit card  Equity &
 2-wheeler loan derivatives
 Commercial  Mudra gold bar
vehicle finance
 Home loan
 Retail business
loan
 Tractor loan
 Working capital
finance
 Construction
equipment finance
 Health care finance
 Education loan
 Gold loan
 Cards Payment service Access to bank
 Credit card  Net safe  Net banking
 Debit card  Merchant  One view
 Prepaid card  Prepaid refill  Insta alert mobile
 Bill pay banking
 Visa bill pay  ATM
 Insta pay  Phone banking
 Direct pay  Email statements
 Visa money  Branch Network
transfer
 E-Monies
electronic money
transfer
 Online payment of
direct tax

Wholesale banking

Corporate Small and medium Financial institutions

Enterprise and trust
 Funded service  Funded service BANKS
 Non funded service  Non funded service  Clearing sub
 Value added  Specialized service membership
service  Value added  RTGS sub membership
 Internet banking service  Fund transfer
 Internet banking  ATM tie ups
 Corporate salary
account
  Tax collection
Financial Institutions
Stock brokers
Mutual funds
Insurance companies
Commodities business
Trusts

NRI services

Accounts & deposits Remittances

 Rupee savings a/c  North America
 Rupee current a/c  Europe
 Rupee fixed  UK
deposits  South east Asia
 Foreign currency  Middle east Africa
deposits  Others
 Accounts for Quick remit
returning Indians India link
Cheque lock box
Telegraphic/wire
transfer
Fund transfer
Cheques/DDs/TCs
Investments & Loans
insurance
 Mutual funds  Home loans
 Insurance  Loan against
 Private banking securities
 Portfolio  Loan against
investment scheme deposits
 Gold credit card
Payment services Access to bank
 Net safe  Net banking
 Bill pay  One view
  Insta pay  Insta alert
 Direct pay  ATM
 Visa money  Phone banking
 Online donation  Email statements
 Branch network

Inside HDFC bank

FIVE “S”, PART OF KAIZEN

Work place transformation focus on effective work place organization and they believe in
“Small changes lead to large improvement”
Every successful organization has their own strategy to win the race in the competitive
market. They use some technique and methodology for smooth running of business. HDFC
BANK also acquired the Japanese technique for smooth running of work and effective work
place organization.
Five ‘S’ Part of Kaizen is the technique which is used in the bank For easy and systematic
work place and eliminating unnecessary things from the work place.

Benefit of FIVE “S”

•

 It can be started immediately.

 Every one has to participate.
 Five “S” is an entirely people driven initiatives.
 Brings in concept of ownership.
 All wastage is made visible.

FIVE ‘S’ Means

S-1 Sort SEIRI

S-2 Systematize SEITON
S-3 Spic-N-Span SEIRO
S-4 Standard SEIKETSU
S-5 Sustain SHITSUKE
1. Sort
It focus on eliminating unnecessary items from the work place. It is excellent way to free
up valuable floor space. It segregates items as per “require and wanted”.

Frequently Required Less Frequently

Required

Remove
everything from
work place
Wanted but Not Junk
Required

2. Systematize

Systematize is focus on efficient and effective Storage method. That means it identify,
organize and arrange retrieval. It largely focuses on good labeling and identification
practices.
Objective: - “A place for everything and everything in its place”.

3. Spic-n-span
Spic-n-Span focuses on regular clearing and self inspection. It brings in the sense of
ownership.

4. Standardise
It focuses on simplification and standardization. It involves standard rules and
policies. It establish checklist to facilitate autonomous maintenance of workplace. It assigns
responsibility for doing various jobs and decides on Five S frequency.

5. Sustain
It focuses on defining a new status and standard of organized work place. Sustain
means regular training to maintain standards developed under S-4. It brings in self- discipline
and commitment towards workplace organization
Labelling on file

File number

Subject

From date

To date

Owner

Box label
For Example
1 / 3 /A/ 6
1 – Work Station (1)
3 – Drawer (3)
A - Shelf (A)
6 – File Number ( 6)

Human Resource

The Bank’s staffing needs continued to increase during the year particularly in the retail
banking businesses in line with the business growth. Total number of employees increased
from 14878 as of March31, 2006 to 21477 as of March 31, 2007. The Bank continues to focus
on training its employees on a continuing basis, both on the job and through training programs
conducted by internal and external faculty. The Bank has consistently believed that broader
employee ownership of its shares has a positive impact on its performance and employee
motivation. The Bank’s employee stock option scheme so far covers
around 9000 employees